ProfessorBainbridge.com

Jeff Lipshaw and yours truly

Jeff Lipshaw touches on yours truly in passing in an article that is a response to "Pseudo-Contract and Shared Meaning Analysis" by Professors Robin Bradley Kar and Margaret Radin:

Here we have Professors Kar and Radin, whose access to information, education, and intelligence are unimpeachable. One of them (Kar) is a longstanding friend and correspondent. I have nothing but the highest regard for them. But, in this instance, I think of them the way I sometimes do about someone, also a friend, one of the world’s leading corporate law scholars, whose access to information, education, and intelligence is equally unimpeachable. That professor is also a very publicly committed Catholic,58 and I am quite sure has made his own ontological and epistemological commitments no amount of reasoned discourse could ever cause me to accept. Wittgenstein’s (and derivatively Ribeiro’s) assessment was that this kind of disagreement is incapable of reconciliation. Instead, a change in belief of one of the interlocutors requires conversion. “If reconciliation is to occur, then one of us must forsake reason-giving, (non-rationally) reject our old rule, and (non-rationally) accept a new rule, thereby ending the dispute.”

58 Stephen Bainbridge, On Closeted Christian Law Professors: Thoughts on Dreher’s Kingsfield, PROFESSORBAINBRIDGE.COM, http://www.professorbainbridge.com/professor bainbridgecom/2015/04/on-closeted-christian-law-professors-thoughts-on-drehers- kingsfield.html (Apr. 26, 2015).

I'm grateful for the kind words (which IMHO especially includes the part about being a "publicly committed Catholic," which is at the end of the day what matters most). I trust Jeff will not take it  amiss if I reward him by praying for his conversion, since reasoned discourse apparently won't work in his case.

Contract law geeks will definitely want to go read the whole article on its own merits, of course.

Professor Stephen Bainbridge's Catholic Social Thought Bibliography

Must Salmon Love Meinhard? Agape and Partnership Fiduciary Duties, 17 Green Bag 2d 257 (2014)

The Bishop’s Alter Ego: Enterprise Liability and the Catholic Priest Sex Abuse Scandal, 46 Journal of Catholic Legal Studies 65 (2007)

Catholic Social Thought and the Corporation, 1 Journal of Catholic Social Thought 595 (2004)

The Bishops and the Corporate Stakeholder Debate, 4 Villanova Journal of Law and Investment Management 3 (2002)

Law and Economics: An Apologia, in Christian Perspectives on Legal Thought 208 (Michael W. McConnell et al. eds., Yale University Press 2001)

Corporate Decisionmaking and the Moral Rights of Employees: Participatory Management and Natural Law, 43 Villanova Law Review 741 (1998) [This one was written before I became a Catholic. I'd write it differently now.]

UCLA law professor takes Bishop McElroy to task over unions, Catholic California Daily (January 16m 2017)

From Priest Abuse to Legal Abuse, TCS Daily, March 26, 2007

Law, Morality and a Just Wage, TCS Daily, February 2, 2007

Cafeteria Catholicism and the Minimum Wage, TCS Daily, January 19, 2007

Jesus Christ as Poached Egg, TCS Daily, May 18, 2006

Judging Faith, TCS Daily, August 9, 2005

Benedict XVI, Tech Central Station, April 20, 2005

Law and Morality in America, Tech Central Station, November 4, 2004

Those Divesting Presbyterians, Tech Central Station, August 2, 2004

“Nothing for Us”: Should Public Libraries Fear Religious Literature?, Liberty, March/April 1998, at 12; reprinted in 41 Christian Librarian 70 (September 1998)

Plus, of course, there's a lot of posts in my Religion category here at the blog.

UND Step Course in Ecclesiology Certificate of Completion

As previously explained, I'm enrolled in the University of Notre Dame's Satellite Theological Education Program (STEP) to pursue their Certificate in Doctrine. I've already taken three of the six required courses, as evidenced by my Certificate of Completion for the Course in Ecclesiology. This has been a tremendously worthwhile program, which has strengthened my faith and enabled me to learn so much more about that faith.

Be patient with me. God is not finished with me.

Outsourcing the Board

Yours truly cited by Judge Kavanaugh's dissent in PHH Corporation v. Consumer Financial Protection Bureau

PHH Corp. v. Consumer Fin. Prot. Bureau, No. 15-1177, 2018 WL 627055, at *88 (D.C. Cir. Jan. 31, 2018) (Kavanaugh, J., dissenting):

As compared to a single-Director independent agency structure, a multi-member independent agency structure—and its inherent requirement for compromise and consensus—will tend to lead to decisions that are not as extreme, idiosyncratic, or otherwise off the rails. Cf. Stephen M. Bainbridge, Why a Board? Group Decisionmaking in Corporate Governance, 55 Vand. L. Rev. 1, 12-19 (2002).

"Can Delaware Be Dethroned?: Evaluating Delaware's Dominance of Corporate Law" Now Available for Purchase

Delaware is the state of incorporation for almost two-thirds of the Fortune 500 companies, as well as more than half of all companies listed on the New York Stock Exchange, NASDAQ, and other major stock exchanges. This gives Delaware a seemingly unchallengeable position as the dominant producer of US corporate law. In recent years, however, some observers have suggested that Delaware's competitive position is eroding. Other states have long tried to chip away at Delaware's position, and recent Delaware legal developments may have strengthened the case for incorporating outside Delaware. More important, however, the federal government increasingly is preempting corporate governance law. The contributors to this volume are leading academics and practitioners with decades of experience in Delaware corporate law. They bring together a variety of perspectives that collectively provide the reader with a broad understanding of how Delaware achieved its dominant position and the threats it faces.

Bainbridge and Henderson, Outsourcing the Board, now available for pre-order

My friend and brilliant co-author Todd Henderson and I are pleased to announce that our new book, Outsourcing the Board: How Board Service Providers Can Improve Corporate Governance, can now be pre-ordered.

In this groundbreaking work, Stephen Bainbridge and Todd Henderson change the conversation about corporate governance by examining the origins, roles, and performance of boards with a simple question in mind: why does the law require governance to be delivered through individual board members? While tracing the development of boards from quasi-political bodies through the current "monitoring" role, the authors find the reasons for this requirement to be wanting. Instead, they propose that corporations be permitted to hire other business associations--known as "Board Service Providers" or BSPs--to provide governance services. Just as corporations hire law firms, accounting firms, and consulting firms, so too should they be permitted to hire governance firms, a small change that will dramatically increase board accountability and enable governance to be delivered more efficiently. Outsourcing the Board should be read by academics, policy makers, and those within the corporations that will benefit from this change.

Quoted by the Street in "Apple Adds Human Rights Proposal to Proxy Following SEC Letter"

From The Street:

When Apple Inc. (AAPL - Get Report) shareholders gather in the Steve Jobs Theater on Feb. 13 for the iPhone maker's annual meeting, they will cast votes on whether to establish a human rights committee on the company's board. 

Shareholder Jing Zhao of Concord, Calif., who owns $2,000 worth of Apple stock, according to Apple's shareholder proxy, proposed setting a committee to establish human rights principles and report to the shareholders and the public. ...

UCLA School of Law professor Stephen Bainbridge suggested the SEC is wrong to require the inclusion of such proposals, writing that the motions force companies "to include statements adverse to its interests in its disclosure documents," in a blog post.

Kindly buy my new co-edited book on Delaware Corporate Law: Can Delaware Be Dethroned?: Evaluating Delaware's Dominance of Corporate Law

Along with my co-editors, Iman Anabtawi, Sung Hui Kim, and James Park, I am delighted to announce the publication of a volume of edited essays on Delaware corporate law by some of the leading academic and practitioner experts in the field:

 

Delaware is the state of incorporation for almost two-thirds of the Fortune 500 companies, as well as more than half of all companies listed on the New York Stock Exchange, NASDAQ, and other major stock exchanges. This gives Delaware a seemingly unchallengeable position as the dominant producer of US corporate law. In recent years, however, some observers have suggested that Delaware's competitive position is eroding. Other states have long tried to chip away at Delaware's position, and recent Delaware legal developments may have strengthened the case for incorporating outside Delaware. More important, however, the federal government increasingly is preempting corporate governance law. The contributors to this volume are leading academics and practitioners with decades of experience in Delaware corporate law. They bring together a variety of perspectives that collectively provide the reader with a broad understanding of how Delaware achieved its dominant position and the threats it faces.

• Readers will benefit from high-profile experts bringing their deep knowledge to bear on the issues
• Contributors include leading corporate law practitioners, providing practical insights
• The authors have a wide range of opinions about the quality of Delaware law, with some maintaining that Delaware law is of high quality and others arguing that it is vague and indeterminate 

 

 

 

Stephen M. Bainbridge, Corporate Directors in the United Kingdom, 59 William & Mary Law Review 65 (2017)

Is now available online.

Abstract: In the United States, state corporation law uniformly provides that only natural persons may serve as directors of corporations. Corporations, limited liability companies, and other entities otherwise recognized in the law as legal persons are prohibited from so serving. In contrast, the United Kingdom allowed legal entities to serve as directors of a company. In 2015, however, legislation came into force adopting a general prohibition of these so-called corporate directors, albeit while contemplating some exemptions. This Article argues that there are legitimate reasons companies may wish to appoint corporate directors. It also argues that the transparency and accountability concerns that motivated the legislation are overstated. The requisite enhancement of transparency and accountability can be achieved without a sweeping ban. Accordingly, this Article proposes that Parliament either repeal the ban or, at least, authorize liberal exemptions.

The Oxford Handbook of Corporate Law and Governance

The Oxford Handbook of Corporate Law and Governance can now be pre-ordered. 

Corporate law and corporate governance have been at the forefront of regulatory activities across the world for several decades now, and are subject to increasing public attention following the Global Financial Crisis of 2008. The Oxford Handbook of Corporate Law and Governance provides the global framework necessary to understand the aims and methods of legal research in this field.

Written by leading scholars from around the world, the Handbook contains a rich variety of chapters that provide a comparative and functional overview of corporate governance. It opens with the central theoretical approaches and methodologies in corporate law scholarship in Part I, before examining core substantive topics in corporate law, including shareholder rights, takeovers and restructuring, and minority rights in Part II. Part III focuses on new challenges in the field, including conflicts between Western and Asian corporate governance environments, the rise of foreign ownership, and emerging markets. Enforcement issues are covered in Part IV, and Part V takes a broader approach, examining those areas of law and finance that are interwoven with corporate governance, including insolvency, taxation, and securities law as well as financial regulation.

The Handbook is a comprehensive, interdisciplinary resource placing corporate law and governance in its wider context, and is essential reading for scholars, practitioners, and policymakers in the field.

It will include my chapter "The Board of Director." 

We are credited

.@jfershee discussing @ProfBainbridge and director vs shareholder primacy at @UTKLaw #BPLB conference. #corpgov pic.twitter.com/G1YRTCX7IK

— Marcia Narine Weldon (@narineweldon) September 16, 2017

Recent Business Law Scholarship from UCLA

"Kokesh Footnote 3 Notwithstanding: The Future of the Disgorgement Penalty in SEC Cases"  UCLA School of Law, Law-Econ Research Paper No. 17-12 STEPHEN M. BAINBRIDGE, University of California, Los Angeles (UCLA) - School of Law Email: bainbrid@law.ucla.edu Disgorgement of ill-gotten gains long has been a basic tool in the Securities and Exchange Commission’s (SEC) penalty toolkit, despite a paucity of statutory authorization. Because disgorgement lacked a statutory framework, courts have had to flesh out the sanction via interstitial rulemaking. In Kokesh v. SEC, the US Supreme Court took up the seemingly technical—but surprisingly important—question of what statute of limitations applies to SEC disgorgement actions. More important, at least for present purposes, the Court’s opinion cast into doubt the validity of the seemingly well-established disgorgement sanction. Earlier cases based the SEC’s authority to seek and the courts’ power to impose disgorgement on the claim that it is a form of equitable ancillary relief. If disgorgement is a penalty, however, courts lack that power and the SEC lacks that authority. This conclusion follows necessarily from the basic premise that there are no penalties in equity and the complete absence of any statutory authority to impose disgorgement as a legal sanction. Now that the Supreme Court has made clear that disgorgement is, in fact, a penalty, the future of the disgorgement penalty looks bleak. "Auditor Settlements of Securities Class Actions"  14 Journal of Empirical Legal Studies 169 (2017) UCLA School of Law, Law-Econ Research Paper No. 17-11 JAMES J. PARK, University of California, Los Angeles (UCLA) - School of Law Email: james.park@law.ucla.edu Some corporate law scholars have concluded that auditors do not have sufficient legal incentive to detect securities fraud and should be governed by a strict liability standard. This study assesses this argument by examining a dataset of 554 class actions alleging an accounting restatement filed from 1996 through 2007. Because some but not all of these restatement cases named an auditor defendant, it is possible to analyze whether variables such as the liability standard affect both the decision to name an auditor defendant as well as the outcome of the case. Despite the narrowing of auditor liability under Rule 10b-5, auditors are still often named as defendants and pay substantial settlements in Rule 10b-5 cases. A more restrictive liability standard is associated with a modest reduction in the rate at which auditors are named as defendants and the rate at which auditor cases end in settlement. If a Rule 10b-5 case against an auditor is strong enough to result in a settlement, the legal standard does not affect the size of the settlement. The auditor’s payment is correlated with nonlegal factors such as whether the issuer is bankrupt and the issuer’s market capitalization. These results are best explained by the tendency of judges to read narrow liability provisions broadly in cases where the size and impact of the alleged fraud are significant. The evidence thus does not support the conclusion that a strict liability standard is necessary to generate sufficient incentives for auditors to detect substantial frauds. "Equal Access to Information: The Fraud at the Heart of Texas Gulf Sulphur"  UCLA School of Law, Law-Econ Research Paper No. 17-14 STEPHEN M. BAINBRIDGE, University of California, Los Angeles (UCLA) - School of Law Email: bainbrid@law.ucla.edu The Texas Gulf Sulphur decision was the seminal moment in the creation of the modern federal insider trading prohibition. In the half century since it was decided, however, courts and commentators have overlooked the glaring flaw in the court’s analysis. In the key part of the opinion, in which the court laid out the equal access standard, the court grossly misrepresented the precedents on which it relied. The court cited two state law opinions that were wholly irrelevant to the problem at hand. It cited two law review articles, but those articles simply do not say what the court claimed they said. Finally, the court made a bald, unsupported statement of Congressional intent that is demonstrably false. The insider trading prohibition thus rests on a foundation of sand. "When Did Tax Avoidance Become Respectable?"  Tax Law Review, Forthcoming UCLA School of Law, Law-Econ Research Paper No. 17-15 STEVEN A. BANK, University of California, Los Angeles (UCLA) - School of Law Email: bank@law.ucla.edu No matter how many tax scandals are revealed in the media – and there have been many in the past year, involving a diverse set of taxpayers ranging from Donald Trump to Apple – what is most remarkable is that, by and large, the public has considered them relatively non-scandalous. This was not always the case. During the 1930s, even the most innocuous tax avoidance maneuvers, such as buying tax-exempt bonds, were attacked as morally suspect. When did that change and why? This Article offers a novel attempt to gauge the respectability of tax avoidance – using a unique, hand-collected dataset of newspaper advertisements for tax planning services in prominent national papers between 1930 and 1970 – and concludes that a shift occurred after World War II. The Article then explains the reason for this shift, suggesting that a combination of extremely high rates, a broadened base of taxpayers subject to that rate, and a deterioration of the wartime consensus for the rate structure laid the foundation for the respectability of tax avoidance in the 1950s and 1960s. In effect, just as the high wartime rates for the wealthy had been justified as a means of compensating for the sacrifice of the poor during the war, the pursuit, and tacit approval, of tax avoidance after the war was a means of compensating for the high rates at a time when the sacrifice rationale for them had ceased to be compelling. This history parallels the modern experience with corporate tax shelters and has lessons for those seeking to reform the current tax system. "The Readable Delaware General Corporation Law 2017-2018 with Patented VisiLaw Markings"  The Readable Delaware General Corporation Law: 2016-2017 with patented VisiLaw markings, June 30,2016 UCLA School of Law, Law-Econ Research Paper No. 1-23 LYNN M. LOPUCKI, University of California, Los Angeles (UCLA) - School of Law Email: lopucki@law.ucla.edu This paper contains a short introduction to VisiLaw and a complete, VisiLaw-marked copy of the Delaware General Corporation Law, including all laws enacted during the Delaware legislature’s regular session ending June 30, 2017. VisiLaw is a system for marking statutes to make them easier to read. The markings visually separate sentences, and clauses within sentences, making it easy to see where each begins and ends. The ability to see sentence structure at a glance makes it possible to read clauses one at a time, without losing orientation in the overall structure. Within each constituent clause, underlining identifies a skeletal sentence – subject, verb, direct object and a few other words. The underlining enables the reader to quickly get the gist, and understand the structure, of the constituent clauses.

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Equal Access to Information: The Fraud at the Heart of Texas Gulf Sulphur

I've just posted a new essay (which was limited to 5000 words by the editors): Equal Access to Information: The Fraud at the Heart of Texas Gulf Sulphur (August 7, 2017). Available at SSRN: https://ssrn.com/abstract=3014977

The Texas Gulf Sulphur decision was the seminal moment in the creation of the modern federal insider trading prohibition. In the half century since it was decided, however, courts and commentators have overlooked the glaring flaw in the court’s analysis.

In the key part of the opinion, in which the court laid out the equal access standard, the court grossly misrepresented the precedents on which it relied. The court cited two state law opinions that were wholly irrelevant to the problem at hand. It cited two law review articles, but those articles simply do not say what the court claimed they said. Finally, the court made a bald, unsupported statement of Congressional intent that is demonstrably false.

The insider trading prohibition thus rests on a foundation of sand.

Keywords: Insider Trading, Securities Regulation, Texas Gulf Sulphur, TGS

Piercing the entity veil to reach officers

Keith Paul Bishop reports that a US District Court, applying California law, declined to pierce the veil of a LLC to reach the entity's President:

However, the Trust Funds present no evidence or even an allegation that Murphy is a member of Show Ready; they merely allege that he is the “President” of Show Ready. (Compl. ¶ 6.)  Thus, this statute [§ 17703.04] does not establish Murphy’s personal liability for Show Ready’s debts.

In our book, Limited Liability: A Legal and Economic Analysis, Todd Henderson and I discuss both the law governing LLC veil piercing and the policy arguments for and against (we come out against). We also discuss the much more limited law on piercing the corporate veil to reach corporate officers and directors rather than shareholders (which we're also against).

Which gives me an excuse to reprint this: